Posted by Article By: Jonathon J. Ibarra
Employers need to be aware of the amendments made in the Illinois Freedom to Work Act (“The Act”) in order to avoid the dreaded “void and unenforceable” covenant not to compete or solicit agreements. The amendments to the Act went into effect on January 1, 2022 and imposes hurdles for non-compete and non-solicit agreements executed after that date.
The Act defines a covenant not to compete as an employer/employee agreement that restricts one of the following: (1) any work for another employer for a specified period; (2) any work in a specified geographical area; or (3) work for another employer similar to an employee’s work for the employer included in the agreement. See 820 ILCS 90/5.
For a covenant not to solicit, the Act defines it as an employer/employee agreement that restricts one of the following: (1) an employee from soliciting for employment the employer’s employees; or (2) an employee from soliciting, for the purpose of selling products or services, or from interfering with the employer’s current or prospective business-related relationships. See 820 ILCS 90/5.
Certain criteria must be met for a covenant not to compete or solicit to be held valid: (1) the employee receives adequate consideration; (2) the covenant is ancillary to a valid employment relationship; (3) the covenant does not extend beyond protecting an employer’s legitimate business interest; (4) does not impose undue hardship; and (5) is not injurious to the public. See 820 ILCS 90/15. Any covenant that violates any single criteria is void and unenforceable.
The first significant amendment to the Act imposes income restrictions on employers entering non-competes with employees. Effective January 1, 2022, an employer may not enter a covenant not to compete with an employee earning less than $75,000 per year. See 820 ILCS 90/10(a). But the quantifiable restrictions do not stop in 2022. Rather, the thresholds increase every five years in $5,000 increments (i.e., $80,000 on January 1, 2027; $85,000 on January 1, 2032; and $90,000 on January 1, 2037). Any non-compete agreement with an employee below those thresholds is void and unenforceable. See 820 ILCS 90/10(a).
The income requirements also apply to non-solicit agreements. Effective January 1, 2022, employers may not enter a covenant not to solicit with an employee earning less than $45,000 per year. Non-solicit thresholds will increase in only $2,500 increments every five years ( i.e., $47,500 on January 1, 2027; $50,000 on January 1, 2032; and, $52,500 on January 1, 2037). Any non-solicit agreement entered with an employee who earns less than those amounts are void and unenforceable. See 820 ILCS 90/10(b).
Another amendment to the Act requires employers to communicate with their employees in writing. Specifically, employers have a duty to inform their employees of certain obligations before entering into an agreement. This includes: (1) advising the employee in writing to consult with an attorney before entering a non-compete and/or non-solicit agreement; and (2) providing the employee with a copy of the covenant at least 14 calendar days before employment begins or at least 14 days to review the covenant. See 820 ILCS 90/20. Violation of this statute renders the agreement void and unenforceable.
Additionally, employers could face monetary repercussions for violating the Act. Employers should know that if they bring a civil action or request an arbitration to enforce a covenant not to compete or solicit, and the employee prevails, then the employee shall recover all costs and reasonable attorney’s fees. See 820 ILCS 90/25.
Also, the statute provides the Illinois Attorney General’s Office with the authority to investigate an employer it believes is engaged in a pattern and practice prohibited by the Act. See 820 ILCS 90/30(a). The Attorney General may bring a civil action and request relief of $5,000 for each violation or $10,000 for repeated violations within a five-year period. See 820 ILCS 90/30(d)(1).
Non-compete and non-solicit agreements are not immune from the COVID-19 pandemic either. Employers may not enter a covenant not to compete or solicit agreement with a terminated, furloughed, or laid off employee that resulted from the COVID-19 pandemic. However, an employer may get around this requirement if, for the duration of enforcement of the non-compete, the employer pays the employee their base salary at the time of termination minus any compensation the employee receives from other sources during that time. Covenants that violate this statute are (you guessed it!) void and unenforceable. See 820 ILCS 90/10(c).
Finally, an employer may not enter a non-compete or non-solicit agreement with an employee covered by the Illinois Public Labor Relations Act or the Illinois Educational Labor Relations Act, or with an individual employed in construction. However, this does not apply to construction employees who are primarily in management, engineering, architecture, design, sales, or who are shareholders, partners, or owners. See 820 ILCS 90/10(d).
Conclusion
There is no denying that the newly enacted statutes are more lenient toward employees. It is apparent that Illinois is not favorable to restrictive covenants and their impact on the free market. The rules and requirements make such covenants even harder to avoid a court rendering them void and enforceable. Employers need to evaluate their agreements with employees to ensure compliance with the new law including income thresholds, notice, an opportunity to consult with counsel, and more. If done properly, then employers can utilize non-compete and non-solicit agreements to protect their legitimate business interest. Failure to do so can lead to dire consequences including hefty monetary fines.
About The Author:
Jonathon J. Ibarra has been an Associate Attorney for Cremer Law, LLC in Chicago, Illinois since 2017. He is a 2009 graduate from the University of Illinois at Urbana-Champaign, and a 2012 graduate from Northern Illinois University’s College of Law. Jonathon has been practicing in Illinois’ federal and state courts since November 2012. He focuses his practice on civil litigation, corporate counseling, and contract review and negotiations. You can contact Jonathon through his personal email address (jonathonjibarra@gmail.com